<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended ...........................December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ................ to ................
COMMISSION FILE NUMBER: 0-24358
ML BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2752439
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Two Aldwyn Center
Villanova, Pennsylvania 19085
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code:)
(610) 526-6460
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----------- -------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of January 24, 1997, there were 14,547,600 shares issued and
11,471,810 shares outstanding of the Registrant's Common Stock.
<PAGE> 2
ML BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
No.
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<S> <C>
PART I - CONSOLIDATED FINANCIAL INFORMATION
1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
December 31, (unaudited) and March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the Three and Nine Months
Ended December 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the Three and Nine Months
Ended December 31, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements (unaudited)...... . . . . . . . . . . . . . . . . 5
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 13
5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
ML BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31 and March 31, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
=======================================================================================================================
(Unaudited)
DECEMBER 31, March 31,
ASSETS 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (including interest-bearing deposits of $16,370 and $11,283
at December 31 and March 31, 1996, respectively) $ 42,173 23,323
Assets available for sale:
Securities 510,771 469,321
Loans 92,317 95,033
Investments (market value $30,171 and $24,946
at December 31 and March 31, 1996, respectively) 30,334 24,942
Mortgage-related securities (market value $386,401 and $401,231
at December 31 and March 31, 1996, respectively) 387,696 404,150
Loans receivable, net of allowance for loan loss ($16,894 and $13,124
at December 31 and March 31, 1996, respectively) 721,363 691,791
Accrued income receivable 11,811 12,085
Other real estate owned, net 1,674 2,043
Premises and equipment, at cost less accumulated depreciation
($15,966 and $13,774 at December 31 and March 31, 1996, respectively) 17,409 14,343
Mortgage servicing rights 49,696 21,865
Goodwill and other intangible assets 3,501 3,499
Other assets 6,346 3,417
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 1,875,091 1,765,812
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Deposits $ 833,822 830,997
Advances from Federal Home Loan Bank 349,560 376,013
Securities sold under agreements to repurchase 529,401 402,212
Advance payments by borrowers for taxes and insurance 4,706 3,533
Other liabilities 16,439 12,720
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,733,928 1,625,475
Commitments and contingencies
Stockholders' Equity:
Preferred stock, no par value, authorized 5,000,000 shares;
no shares issued and outstanding - -
Common stock, $.01 par value, authorized 30,000,000 shares;
14,547,600 shares issued 73 73
Additional paid-in capital 96,907 95,977
Common stock acquired by stock benefit plans (7,675) (8,888)
Treasury stock, at cost; 2,884,090 and 2,053,800 shares
at December 31 and March 31, 1996, respectively (31,090) (20,531)
Unrealized gain on securities available for sale 2,138 120
Retained earnings 80,810 73,586
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 141,163 140,337
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,875,091 1,765,812
======================================================================================================================
</TABLE>
1
<PAGE> 4
ML BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three and nine months ended December 31, 1996 and 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
=============================================================================================================================
(Unaudited)
Three months Nine months
ended December 31, ended December 31,
------------------------- ------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Interest income:
Loans $ 16,685 13,706 48,637 38,630
Mortgage-related and investment securities 7,332 8,022 21,985 25,893
Assets available for sale 11,175 7,857 32,426 23,676
Interest-bearing deposits 134 121 410 389
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 35,326 29,706 103,458 88,588
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 8,046 8,024 24,391 23,236
FHLB advances 5,615 5,760 19,082 16,722
Borrowings and other 7,758 5,315 19,743 16,885
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 21,419 19,099 63,216 56,843
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 13,907 10,607 40,242 31,745
Provision for loan losses 2,300 1,000 4,310 3,000
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,607 9,607 35,932 28,745
Non-interest income:
Retail fees and charges 458 384 1,305 1,211
Mortgage banking operations 2,573 1,112 9,270 2,915
Net gain (loss) on:
Sales of securities available for sale (158) (100) (144) (103)
Other real estate activities 274 72 600 63
Rental income 127 140 435 444
Other 37 159 195 303
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 3,311 1,755 11,661 4,833
- -----------------------------------------------------------------------------------------------------------------------------
Non-interest expenses:
Compensation and employee benefits $ 4,790 3,128 15,863 9,490
Advertising 424 467 1,649 1,362
Data processing 436 415 1,290 1,073
Federal insurance premiums 393 458 6,104 1,156
Amortization of goodwill and other intangible assets 997 297 3,793 754
Net occupancy costs 1,586 1,015 4,414 2,803
Professional fees 210 145 600 532
Other 1,269 732 3,930 2,400
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Total non-interest expenses 10,105 6,657 37,643 19,570
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,813 4,705 9,950 14,008
Income taxes 1,784 1,641 (424) 5,153
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 3,029 3,064 10,374 8,855
=============================================================================================================================
Primary earnings per share $ 0.27 0.24 0.91 0.69
=============================================================================================================================
Fully diluted earnings per share $ 0.27 0.24 0.91 0.69
=============================================================================================================================
Weighted average number of shares-primary 11,421,036 12,771,214 11,346,811 12,858,490
=============================================================================================================================
Weighted average number of shares-fully diluted 11,421,036 12,771,214 11,408,793 12,918,592
=============================================================================================================================
</TABLE>
2
<PAGE> 5
ML BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
======================================================================================================================
(Unaudited)
Nine months
ended December 31,
------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 10,374 8,855
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Amortization of:
Goodwill and other intangible assets $ 3,793 754
Deferred loan origination fees (1,498) (1,684)
Premiums and discounts 2,240 474
Common stock acquired by stock benefit plans 2,143 1,725
Mortgage servicing rights 5,990 2,403
Provision for loan losses 4,310 3,000
Net (gain) loss on sale of assets available for sale:
Securities 144 103
Loans (5,647) (1,029)
Net (gain) loss on other real estate activities (600) 7
Depreciation and amortization 2,041 1,525
Increase/decrease in:
Loans available for sale 8,363 (45,235)
Accrued income receivable 274 (1,272)
Deferred federal income taxes (3,554) (1,389)
Other assets (2,929) (2,013)
Other liabilities 6,157 (3,605)
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments 21,227 (46,236)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 31,601 (37,381)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in loans receivable (33,587) (141,092)
Proceeds from sales of
FHLB Stock 10,668 4,413
Securities available for sale 118,072 53,041
Proceeds from maturities or repayments of:
Mortgage-related securities 44,781 40,581
Securities available for sale 83,431 58,652
Investments 6,000 30,000
Purchases of:
Mortgage-related securities (29,735) (33,116)
Securities available for sale (240,798) (116,608)
Investments (22,057) (17,975)
Mortgage servicing rights (33,821) (9,810)
Net decrease (increase) in other real estate owned 294 (972)
Proceeds from other real estate activities 1,878 1,636
Excess of liabilities assumed over assets acquired (3,795) -
Purchases of premises and equipment (5,107) (1,901)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (103,776) (133,151)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
3
<PAGE> 6
ML BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(in thousands)
<TABLE>
<CAPTION>
==================================================================================================================
(Unaudited)
Nine months
ended December 31,
--------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 2,825 105,176
Proceeds from deposits purchased - 28,925
Dividends paid (3,150) (2,336)
Proceeds from securities sold under agreements to repurchase 162,901 141,000
Payments of securities sold under agreements to repurchase (35,712) (229,837)
Proceeds from FHLB advances 100,000 247,098
Payments of FHLB advances (126,453) (104,530)
Net decrease in advance payments by borrowers for taxes and insurance 1,173 814
Purchase of treasury stock (10,559) (9,941)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 91,025 176,369
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 18,850 5,837
Cash and cash equivalents:
Beginning of period 23,323 20,007
- ------------------------------------------------------------------------------------------------------------------
End of period $ 42,173 25,844
==================================================================================================================
Supplemental disclosure:
Cash payments for interest $ 62,910 56,678
Cash payments for income taxes 2,000 11,998
Transfer of loans receivable into other real estate owned 1,203 988
Deposits acquired in excess of cash received - 1,093
Transfer of mortgage-related securities to securities
available for sale - 56,828
Net unrealized gain on securities available for sale 2,018 8,294
Tax effect on securities available for sale 1,116 3,289
==================================================================================================================
</TABLE>
4
<PAGE> 7
ML BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements were prepared in
accordance with instructions to Form 10-Q, and therefore, do not include
information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. However, all normal,
recurring adjustments which, in the opinion of management, are necessary
for a fair presentation of the financial statements, have been included.
These financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the ML Bancorp,
Inc. ("Company") Annual Report for the period ended March 31, 1996. The
results for the nine months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 31, 1997.
In July 1996, the Company declared a two-for-one stock split of its
common stock. One share for each share held by shareholders of record on
August 9, 1996 was distributed on September 6, 1996. All share and per
share data have been adjusted for the two-for-one stock split.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-based Compensation" ("SFAS 123").
This statement encourages the adoption of fair value accounting for
stock-based compensation to employees. Further, in the event that fair
value accounting is not adopted, SFAS 123 requires pro forma disclosure
of net income and earnings per share as if fair value accounting had been
adopted. SFAS 123 became effective for the Company on April 1, 1996.
The Company has elected not to adopt the fair value accounting provisions
of SFAS 123, and will instead provide the required pro forma disclosures,
as permitted.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125"). This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets
it controls and liabilities it has incurred and derecognizes financial
assets it no longer controls and liabilities that have been extinguished.
The approach focuses on the assets and liabilities that exist after the
transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of
collateral. The Company has not yet determined the effect, if any, that
SFAS 125 will have on its financial statements and will adopt SFAS 125
prospectively, effective January 1, 1997, the required date of adoption.
5
<PAGE> 8
ML BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(3) LOANS RECEIVABLE
Loans receivable at December 31 and March 31, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, March 31,
1996 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans:
One- to four-family $ 330,616 344,713
Construction and land:
Residential 95,254 91,217
Commercial 27,513 34,101
Commercial real estate 114,823 109,135
Multi-family 12,549 11,348
--------------------------------------------------------------------------------------------------------
Total real estate loans 580,755 590,514
--------------------------------------------------------------------------------------------------------
Other loans:
Consumer:
Home equity and equity lines of credit 126,766 98,096
Other 11,356 12,158
Commercial 81,858 69,647
--------------------------------------------------------------------------------------------------------
Total other loans 219,980 179,901
--------------------------------------------------------------------------------------------------------
800,735 770,415
Loans in process (construction loans) (57,746) (61,389)
Deferred loan fees (4,732) (4,111)
Allowance for loan losses (16,894) (13,124)
--------------------------------------------------------------------------------------------------------
$ 721,363 691,791
========================================================================================================
</TABLE>
Activity in the allowance for loan losses for the three and nine months
ended December 31, 1996 and 1995 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------- --------------------
1996 1995 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 14,981 10,207 13,124 9,111
Provision for loan losses 2,300 1,000 4,310 2,000
Charge-offs (418) (22) (617) (63)
Recoveries 31 6 77 143
---------------------------------------------------------------------------------------------------
Balance, end of period $ 16,894 11,191 16,894 11,191
===================================================================================================
</TABLE>
6
<PAGE> 9
ML BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(4) DEPOSITS
The major types of savings deposits by amounts and the percentages of
such types to total savings deposits are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 March 31, 1996
------------------------- ------------------------
% of % of
AMOUNT TOTAL Amount total
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 112,771 13.52 % $ 81,767 9.84 %
Money market and NOW accounts 156,753 18.80 155,115 18.67
Passbook and statement savings accounts 84,967 10.19 88,011 10.59
---------------------------------------------------------------------------------------------------------
354,491 42.51 324,893 39.10
Certificates of deposit 479,331 57.49 506,104 60.90
---------------------------------------------------------------------------------------------------------
$ 833,822 100.00 % $ 830,997 100.00 %
=========================================================================================================
</TABLE>
(5) EARNINGS PER SHARE
Primary and fully-diluted earnings per share ("EPS") were $0.27 and
$0.91 for the three and nine month periods ended December 31, 1996,
respectively, and $0.24 and $0.69 for the comparable periods ended
December 31, 1995. Per share amounts have been adjusted for the
Company's two-for-one stock split in September 1996. Unless
anti-dilutive, stock options are considered common stock equivalents
and are included in the computation of the weighted average number of
shares outstanding using the treasury stock method. The options
granted under the Company's 1994 Stock Option Plan were dilutive
during the three and nine month periods ended December 31, 1996 and
1995.
(6) SUBSEQUENT EVENT
On February 4, 1997, the Company entered into a definitive agreement
to acquire Penncore Financial Services Corporation ("Penncore") the
holding company for Commonwealth State Bank ("Commonwealth").
Commonwealth is a $138 million, state-chartered bank with two branches
in Newtown and Yardley, Bucks County, Pennsylvania. Under the terms
of the agreement, Penncore shareholders can receive either $36.56 in
cash or 2.5 shares of ML Bancorp, Inc. common stock for each Penncore
share owned. The transaction, which has a total value of $14.1
million, will be accounted for as a purchase and is subject to
regulatory and Penncore shareholder approvals. When consummated, the
transaction is not expected to materially effect the earnings per
share and tangible book value of the Company. Penncore has granted
the Company an option to purchase, under certain circumstances,
Penncore common stock in an amount up to 19.9% of Penncore's
outstanding shares, at an exercise price of $24.00 per share.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net income for the quarter ended December 31, 1996 was $3.0
million or $0.27 per share, compared to net income of $3.1 million or $0.24 per
share for the same quarter in 1995. Net income for the nine month period ended
December 31, 1996 was $10.4 million or $0.91 per share, compared to $8.9
million or $0.69 per share for the same nine months in 1995. Per share amounts
have been adjusted for the Company's two-for-one stock split, which was
distributed on September 6, 1996, to shareholders of record on August 9, 1996.
The Company's earnings for the quarter ended December 31, 1996 were adversely
affected by an additional $1.3 million provision for loan losses, related
principally to a commercial business client that declared bankruptcy in
December 1996 after several financial improprieties were uncovered. Partially
offsetting this additional charge was a nonrecurring $500,000 interest income
recovery from the disposition of a loan that was previously classified as
non-performing. The net after-tax effect on earnings of these two events was a
reduction of approximately $0.04 per share on a fully diluted basis for the
three and nine months ended December 31, 1996. The aforementioned commercial
business client's loans have been classified as nonperforming, and are the
primary reason that the Company's nonperforming assets as a percentage of total
assets increased to 0.84% at December 31, 1996, compared to 0.59% at March 31,
1996.
Results of operations for the nine month period ended December 31, 1996 were
also impacted by $3.8 million of income related to legislation which eliminated
the need to recapture tax bad debt reserves, offset by a pre-tax charge of $4.8
million ($3.1 million net of tax) for a one-time Savings Association Insurance
Fund ("SAIF") special assessment as part of legislation adopted to recapitalize
the SAIF. The net effect of this legislation on earnings was an increase of
$0.06 per share for the nine month period.
FINANCIAL CONDITION
CASH AND INVESTMENTS. Cash and investments totaled $72.5 million at December
31, 1996, compared to $48.3 million at March 31, 1996, an increase of $24.2
million, or 50.2%. The primary reason for the increase was investment
purchases of $22.1 million, which were offset by securities repayments, sales
and maturities of $16.7 million during the period, and an $18.9 million
increase in cash.
MORTGAGE-RELATED SECURITIES AND SECURITIES AVAILABLE FOR SALE.
Mortgage-related securities and securities available for sale increased by
$25.0 million or 2.9% at December 31, 1996, to $898.5 million from $873.5
million at March 31, 1996. The increase was principally due to $270.5 million
in purchases of securities (primarily adjustable rate mortgage-backed
securities available for sale), which were partially offset by repayments and
securities maturities of $128.2 million and securities sales of $118.1 million.
LOANS AVAILABLE-FOR-SALE AND LOANS RECEIVABLE, NET. Aggregate loans receivable
(loans receivable, net and loans available for sale) totaled $813.7 million at
December 31, 1996, an increase of $26.9 million or 3.4% from $786.8 million at
March 31, 1996 due primarily to a
8
<PAGE> 11
$29.6 million or 4.3% increase in loans receivable, net, which was partially
offset by a $2.7 million or 2.9% decrease in loans available for sale. The
main reason for the increase in loans receivable was a $27.9 million or 25.3%
increase in consumer loans (primarily home equity loans) and a $12.2 million or
17.5% increase in commercial business loans. These increases more than offset
a $14.1 million or 4.1% decline in residential mortgages.
NON-PERFORMING ASSETS. The Company's total non-performing assets increased by
$5.4 million or 51.4% from $10.4 million or 0.59% of total assets at March 31,
1996, to $15.8 million or 0.84% of total assets at December 31, 1996. The
Company's non-accrual loans were $14.1 million at December 31, 1996, an
increase of $5.7 million or 68.3% from March 31, 1996. The increase in the
Company's non-performing loans was attributable primarily to four commercial
business relationships totaling $8.3 million (the largest of which is $4.3
million), and increases in the residential and consumer loan balances that
totaled $1.0 million. Partially offsetting these increases was a reduction in
the non-performing construction loan portfolio due to the disposition of a $1.7
million construction loan, in which the Company recovered approximately
$500,000 in past due interest.
Included in the Company's nonperforming commercial business loans (one of which
was classified as substandard at March 31, 1996) at December 31, 1996, is $4.3
million in loans to a single borrower who declared bankruptcy in December 1996
after several alleged financial improprieties were uncovered. The Company has
established a $3.0 million specific reserve for this relationship, and is in
the process of investigating legal remedies to recover our outstanding balance.
Also included in nonperforming commercial business loans is a $1.7 million loan
that became current and therefore performing in January 1997. Exclusive of this
relationship, the Company's nonperforming loans total $12.4 million, or 0.66%
of total assets at December 31, 1996.
Other real estate owned totaled $1.7 million at December 31, 1996 compared to
$2.0 million at March 31, 1996.
At December 31, 1996, the Company's allowance for loan losses amounted to $16.9
million, (which includes $3.5 million of specific allowance on the
aforementioned commercial business relationships, and $300,000 of specific
allowances on two residential loans) or 119.5% of non-performing loans and 2.0%
of gross loans receivable. At March 31, 1996, the Company's allowance for
loan losses was $13.1 million (which included $754,000 in specific allowances)
or 156.2% of non-performing loans and 1.6% of gross loans receivable. At
December 31, 1996, the Company's allowance for loan losses, (net of specific
allowances) as a percentage of gross loans excluding nonperforming loans was
1.6%, and was 1.6% at March 31, 1996.
MORTGAGE SERVICING RIGHTS. Mortgage servicing rights, both purchased and
originated ("MSRs") more than doubled from $21.9 million at March 31, 1996 to
$49.7 million at December 31, 1996. The increase was primarily due to $19.1
million of MSRs that were acquired when the Company purchased Philadelphia
Mortgage Corporation ("PMC") in the first quarter of fiscal 1997, as well as
the purchase of $12.8 million of MSRs and the origination of $1.9 million of
MSRs during the period. Partially offsetting those increases was $6.0 million
of amortization of MSRs for the nine months ended December 31, 1996.
9
<PAGE> 12
DEPOSITS. Deposits totaled $833.8 million at December 31, 1996 compared to
$831.0 million at March 31, 1996. The slight increase was due to a $31.0
million or 37.9% increase in non-interest bearing deposits, which more than
offset the $26.8 million or 5.3% decrease in time deposits.
BORROWINGS. Total borrowings increased $100.7 million or 12.9% to $879.0
million at December 31, 1996, compared to $778.2 million at March 31, 1996.
The Company's borrowings are primarily comprised of advances from the Federal
Home Loan Bank ("FHLB") and repurchase agreements. Repurchase agreements are
commitments the Company enters into to sell securities under terms that require
it to repurchase the same securities by a specified date. Such agreements
represent a competitive cost funding source for the Company; however, the
Company is subject to the risk that the lender may default at maturity and not
return the collateral. The repurchase agreements are primarily comprised of
various Federal Home Loan Mortgage Corporation ("FHLMC") and large, established
investment brokerage institution repurchase agreements. At December 31, 1996,
the Company had repurchase agreements totaling $529.4 million with a weighted
average maturity of approximately 10 months and a weighted average interest
rate of 5.53%.
FHLB advances totaled $349.6 million with a weighted average maturity of
approximately 30 months and a weighted average interest rate of 6.22% at
December 31, 1996.
EQUITY. At December 31, 1996, total stockholders' equity was $141.2 million or
7.5% of total assets, an increase of $826,000 or 0.6% over stockholders' equity
at March 31, 1996 which was $140.3 million or 7.9% of total assets. The slight
increase in equity was due primarily to net income of $10.4 million, a $2.0
million net of tax increase in the unrealized gain related to assets available
for sale and amortization related to stock benefit plans of $1.2 million, which
was partially offset by $10.6 million in treasury stock purchases and $3.1
million of dividends paid.
RESULTS OF OPERATIONS
NET INCOME. The Company's net income for the three months ended December 31,
1996 was $3.0 million or $0.27 per share, compared to $3.1 million or $0.24 per
share in the comparable prior period. For the nine months ended December 31,
1996, net income totaled $10.4 million or $0.91 per share, an increase of $1.5
million or 17.2% over the prior comparable period.
NET INTEREST INCOME. Net interest income before provision for loan losses
amounted to $13.9 million for the three months ended December 31, 1996, a $3.3
million or 31.1% increase from the $10.6 million recorded in the comparable
prior period. For the nine months ended December 31, 1996, net interest income
before the provision for loan losses amounted to $40.2 million, which
represented a $8.5 million or 26.8% increase from the $31.7 million recorded in
the comparable 1995 period.
Interest income for the three months ended December 31, 1996 totaled $35.3
million as compared to $29.7 million for the same period in 1995, an increase
of $5.6 million or 18.9%. For the nine months ended December 31, 1996,
interest income increased $14.9 million or 16.8% from $88.6 million for the
comparable period in 1995. Included in interest income for the three and nine
month results was the previously mentioned $500,000 interest income recovery.
Exclusive of the one time recovery, interest income for the three and nine
month periods ended December 31, 1996 would have totaled $34.8 million and
$103.0 million, respectively, resulting in increases of
10
<PAGE> 13
$5.1 million or 17.2% and $14.4 million or 16.2% over the respective 1995
periods. The improvements in interest income were primarily the result of an
increase in average interest-earning assets of $247.6 million or 16.0% and
$230.4 million or 14.9% for the three and nine months ended December 31, 1996
compared to the three and nine months ended December 31, 1995, respectively.
Additionally, the yield earned on average interest-earning assets increased by
11 and 12 basis points compared to the same three and nine month periods in
1995. Exclusive of the $500,000 recovery, the yield improved by 9 basis points
for the quarter and year to date periods ended December 31, 1996.
Interest expense for the three and nine months ended December 31, 1996 totaled
$21.4 million and $63.2 million, respectively, an increase of $2.3 million or
12.1% and $6.4 million or 11.2% over the comparable 1995 periods. The
increases in interest expense were attributable to higher average
interest-bearing liabilities at December 31, 1996 relative to the comparable
periods in 1995, which more than offset the reduction in the Company's cost of
funds for the three and nine month periods. The increase in average
interest-bearing liabilities was $309.8 million or 21.6% and $289.2 million or
20.2% for the three and nine months ended December 31, 1996, respectively,
over the comparable 1995 periods. The average interest rate paid thereon
declined 41 and 40 basis points over the respective three and nine month
periods in 1995.
PROVISION FOR LOAN LOSSES. The Company establishes a provision for loan
losses, which is charged to operations, in order to maintain the allowance for
loan losses at a level which is deemed to be appropriate based upon an
assessment of prior loss experience, the volume and type of lending presently
being conducted by the Company, industry standards, past due loans, economic
conditions in the Company's market area generally and other factors related to
the collectability of the Company's loan portfolio. As previously mentioned, a
commercial business client declared bankruptcy in December 1996 and management
deemed that an additional $1.3 million of loan loss provisions was necessary to
maintain an adequate loan loss allowance within its previously established
range to total loans. For the three and nine months ended December 31, 1996,
the provision for loan losses amounted to $2.3 million and $4.3 million,
respectively, an increase of $1.3 million over the same periods in 1995.
Consistent with its long-term goals, the Company intends to continue to
increase its originations and/or participations of commercial (commercial real
estate and commercial business) loans. Commercial loans, while typically
having a higher yield, entail different risks when compared to residential
lending because such loans typically involve larger loan balances to single
borrowers and because the payment experience on such loans is dependent on the
successful operation of the project or the borrower's business. The Company
attempts to mitigate its risk exposure by limiting such lending to proven
developers/owners, only considering properties with existing operating
performance, requiring conservative debt coverage ratios and continually
monitoring the operation and physical condition of the collateral.
Although management utilizes its best judgment in providing for possible
losses, there can be no assurance that the Company will not have to increase
its provisions for loan losses in the future as a result of future increases in
non-performing loans or for other reasons which could adversely affect the
Company's results of operations. In addition, various regulatory agencies as
an integral part of their examination process, periodically review the
allowance for loan losses. Such
11
<PAGE> 14
agencies may require the Company to recognize additions to the allowance for
loan losses based on their judgments of information that is available to them
at the time of their examination.
NON-INTEREST INCOME. Total non-interest income amounted to $3.3 million and
$11.7 million for the three and nine months ended December 31, 1996, an
increase of $1.6 million and $6.8 million over the comparable 1995 periods,
respectively. The increases during both periods were primarily due to the
additional mortgage banking income earned in 1996 that was attributable to the
previously announced mortgage banking acquisitions. Mortgage banking income
more than doubled to $2.6 million and $9.3 million for the three and nine month
periods ended December 31, 1996 from the prior comparable periods.
NON-INTEREST EXPENSES. Non-interest expenses increased by $3.4 million or
51.8% to $10.1 million for the quarter ended December 31, 1996 over the
comparable period in 1995. For the nine months ended December 31, 1996,
non-interest expenses totaled $37.6 million as compared to $19.6 million for
the same period in 1995. Included in the nine months ended December 31, 1996 is
the $4.8 million one time SAIF special assessment. Exclusive of the special
assessment, year to date non-interest expenses increased by $13.3 million or
67.8% over the nine months ended December 31, 1995. The primary reason for the
Company's increased non-interest expenses in 1996 was the additional costs
incurred from the Company's three acquisitions and the opening of eight new
business centers. Compensation and employee benefits increased by $1.7 million
or 53.1% and $6.4 million or 67.0% for the three and nine months ended December
31, 1996, due to the addition of approximately 170 acquisition related and new
business center full time equivalent personnel, additional employee benefit
plan expenses and general salary increases. Amortization of goodwill related
to these acquisitions totaled $1.0 million and $3.0 million for the three and
nine months ended December 31, 1996, respectively. Other operating expenses
increased primarily due to business center expansions, costs associated with
new products, and the acquisitions.
INCOME TAXES. For the quarter ended December 31, 1996, the Company recorded
tax expense of $1.8 million for an effective rate of 37.1%. For the nine
months ended December 31, 1996, the Company recorded a tax benefit of $424,000,
which was attributable primarily to new legislation which eliminated the need
for $3.8 million of tax bad debt reserves, as well as the $1.7 million tax
effect of the aforementioned SAIF premium. For the three and nine months ended
December 31, 1995, income tax expense amounted to $1.6 million and $5.2
million, respectively, with the effective tax rates calculated at 34.9% and
36.8%, respectively. The increased effective tax rates in the current year are
due to the Company's complete utilization of its state net operating loss
during the year, thus creating the need for state tax provision. Differences
between the effective and statutory rates for the periods ended December 31,
1996 and 1995 are due to items that are either non-taxable or non-deductible.
CAPITAL RESOURCES. The Office of Thrift Supervision ("OTS") regulations
require that the Company's subsidiary, Main Line Bank ("Bank") meet minimum
regulatory tangible, core and risk-based capital requirements. At December 31,
1996, the Bank exceeded all regulatory capital requirements.
12
<PAGE> 15
The following table sets forth the Bank's compliance with each of the
regulatory capital requirements at December 31, 1996.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital Capital
------- ------- -------
<S> <C> <C> <C>
Total Regulatory Capital $119,005 $119,005 $130,038
Minimum Required Regulatory Capital 28,063 56,179 70,148
-------- -------- --------
Excess Regulatory Capital $90,942 $62,826 $59,890
Regulatory Capital as a
Percentage of Assets (1) 6.36% 6.36% 14.83%
Minimum Capital Required as a
Percentage of Assets 1.50% 3.00% 8.00%
--------- -------- --------
Excess Regulatory Capital as a
Percentage of Assets 4.86% 3.36% 6.83%
========= ======== ========
</TABLE>
(1) Tangible and core capital are computed as a percentage of adjusted total
assets of $1.9 billion. Risk-based capital is computed as a percentage
of total risk-weighted assets of $877 million.
LIQUIDITY. The Bank is required by the OTS to maintain average daily balances
of liquid assets and short-term liquid assets (as defined) in amounts equal to
5% and 1%, respectively, of net withdrawable deposits and borrowings payable in
one year or less to assure its ability to meet demand for withdrawals and
repayment of short-term borrowings. The liquidity requirements may vary from
time to time at the direction of the OTS depending upon economic conditions and
deposit flows. The Bank's liquidity ratio and short-term liquid asset ratio as
of December 31, 1996, was 6.8% and 4.5%, respectively.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant or
any of its subsidiaries is a part or to which any of their
property is subject.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Not Applicable
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned, thereunto duly authorized.
ML BANCORP, INC.
Date: January 30, 1997
/s/ Brian M. Hartline
- --------------------------------------------------
Brian M. Hartline
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1997
<CASH> 25,803
<INT-BEARING-DEPOSITS> 16,370
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 510,771
<INVESTMENTS-CARRYING> 418,030
<INVESTMENTS-MARKET> 416,572
<LOANS> 830,574
<ALLOWANCE> 16,894
<TOTAL-ASSETS> 1,875,091
<DEPOSITS> 833,822
<SHORT-TERM> 425,369
<LIABILITIES-OTHER> 21,145
<LONG-TERM> 453,592
0
0
<COMMON> 0
<OTHER-SE> 141,163
<TOTAL-LIABILITIES-AND-EQUITY> 1,875,091
<INTEREST-LOAN> 52,963
<INTEREST-INVEST> 50,085
<INTEREST-OTHER> 410
<INTEREST-TOTAL> 103,458
<INTEREST-DEPOSIT> 24,391
<INTEREST-EXPENSE> 63,216
<INTEREST-INCOME-NET> 40,242
<LOAN-LOSSES> 4,310
<SECURITIES-GAINS> (144)
<EXPENSE-OTHER> 37,643
<INCOME-PRETAX> 9,950
<INCOME-PRE-EXTRAORDINARY> 9,950
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,374
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 3.01
<LOANS-NON> 14,142
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,665
<ALLOWANCE-OPEN> 13,124
<CHARGE-OFFS> 617
<RECOVERIES> 77
<ALLOWANCE-CLOSE> 16,894
<ALLOWANCE-DOMESTIC> 16,894
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
